Who continues to grow sugar beets?

European sugar prices have taken a nosedive. A hard blow, given that buyers recently sounded the alarm. This was because too little of the sweet was readily available. Brussels watches from the sidelines. The question then remains: who will continue to grow sugar beets?

In 2013, an intervention file was drawn up, in which a number of agricultural products were eligible: skimmed milk powder, butter, pork, wheat and also sugar. This week European Commissioner Phil Hogan decided that the latter product will not be protected by such a regulation. Is that a burden or a joy for the sector?

Intervention scheme
Hogan's decision is somewhat strange. The intervention scheme for skimmed milk powder, which Monday January 29 was closed, is fresh in the memory. For sugar, Brussels has the option of creating a private intervention scheme. Producers are paid a storage fee to store the product for 3 or 7 months and thus give vent to the market. A number of European member states have expressly requested this.

Hogan doesn't flinch. In March 2012, the average EU sugar price broke through the €700 per tonne barrier. This lasted until November 2013. Spot prices reached a level of almost €800 per tonne. In the eyes of Brussels, factories have had ample opportunity to build up financial reserves. In addition, the quota end had been set. Somehow it also suits arable farmers. They don't like knocking on the door for support, but they do their own thing.

Own fault…
Long before the quota disappeared, one sugar factory after another published its growth ambitions. In the Netherlands, the total surface area increased by 20%, representing 15.000 hectares. Unbridled growth with an uncertain market outlook means taking risks, that's how Brussels has to think. It's your own fault, big bump. However, haven't we experienced that situation before? When another production quota disappeared. It is measuring with 2 sizes.

An intervention price of €404 per tonne has been set for sugar. If the average EU sugar price falls below this, an intervention scheme can intervene. That is not going to happen, while this level will most likely be reached soon. In 2017, the price fall was somewhat dampened. As factories sold sugar early in the season for higher prices. 2018 will be the year of truth.

Future of factories
Sugar refineries will have a hard time in the short term, take Tate&Lyle for example. In southern Europe, the refining is slightly better, because raw sugar can be imported at a lower price. The situation is different for Northwestern Europe. The non-cooperatives should also be questioned. Growers have their fate in their hands.

Tension was clearly noticeable for the 2017 harvest. Südzucker had a hard time in Poland (Südzucker Polska) and Belgium (Tiense Suikerraffinaderij). Beet growers disagreed with the price. Finally, just before the sowing machines started driving, the drawing was done. A dime on its side. This year, the bargaining game is likely to be played even harder. Where is the pain threshold for the grower? Will they still be growing beets for €18 to €20 per tonne? Factories have grain prices on their side.

Alternatives are not worthwhile. In Eastern European member states, beet cultivation has a hectare allowance, paid with Brussels money. Experience shows that processors adjust the contracts accordingly. Non-cooperative processors are in a difficult position, such as British Sugar in the United Kingdom, Agrana in Austria and Nordic Sugar in Lithuania, among others.

Cooperative thought
It's simple: a cooperative is stronger. This too has to do with low market prices, but both processor and grower benefit from a positive result. In the Netherlands we have the group advantage. In the days of sugar for €700, Agrana paid the absolute minimum price to growers. We are talking about €25 per tonne. That is their right, but can you still look the grower straight in the eye?

There are still many unprofitable factories in Europe. In addition, it is extremely difficult to make good returns with a factory that only runs between September and March. Processors go through it with a dust comb, concentrating cultivation in high-yielding regions with high-yielding factories. Right up the street for beet growing in the Netherlands.

Niels van der Boom

Niels van der Boom is a senior market specialist for arable crops at DCA Market Intelligence. He mainly makes analyses and market updates about the potato market. In columns he shares his sharp view on the arable sector and technology.

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